Meanwhile, the stage is set for a fairly dramatic weekend in Europe as results of the latest bank stress test are being released.

EU governments have pledged to backstop any banks that fail and the ECB has revived its bond-buying program, at least unofficially, reversing its stance from earlier this year. But EU finance ministers have delayed holding another "emergency meeting" and neither of those actions is being viewed as anything more than a temporary reprieve, judging by the rhetoric coming from the Continent.

"This trust crisis, which was evoked by Greece is now threatening the euro as a whole," German Finance Minister Wolfgang Schäuble said in an interview with FT Deutschland. "That's why we have to find a convincing solution to the problem."

"What's lacking so far is a European solution to a European problem," said Ajai Chopra, Deputy Director of the IMF's Europe department, adding that EU leaders had so far provided an "insufficient response" to the crisis.

"It's clear the path of piecemeal crisis-by-crisis, weekend-by-weekend approach is clearly not going to get them where they need to go," he says. "It's past the point of thinking there's anything that any individual country, not matter how determined," can do to stem the crisis.

Just as the Greek parliament's approval of an austerity package — following a confidence vote and amid fierce street protests in Athens — failed to clam markets for long, Galbraith says the same fate likely awaits Italy's $63 billion austerity package, which the upper house passed and the lower house is expected to approve tonight.

"There's no reason to think austerity measures are going to make the markets calm down," he says: less government spending typically leads to lower GDP and a higher debt-to-GDP ratio so nations are "not any further forward with respect to financial market criteria."

The debt crisis in Europe's periphery has now become a "systemic issue" that demands a "large-scale resolution," Galbraith says. "Waiting for the market to turn around and suddenly decide the problem is going away is an increasingly hopeless game."

Among others, Galbraith recommends a so-called Euro Bond solution where each EU members' debt is pooled together up to a certain percentage — say 60% of GDP — to create a unified European sovereign debt "that's bigger than the markets."

Such proposals have been opposed in the past by, most notably, Germany and France, a view reiterated this week by Schauble in the same FT Deutschland interview: "[Eurobonds] would only be a further incentive for states not to budget properly anymore," he said.

Citing the political pressure on various EU members and lack of institutional framework to adopt substantive reform, it's "hard to be optimistic" about Europe, Galbraith says. "They need to think in terms of constitutional reform. The other possibility [is] ultimately the European project comes to grief."